2/11/2003 @ 12:00PM

Building Blocks Of Chinese IP Law

China is oft-reviled as a land of pirates, stealing software and T-shirt designs at every turn. While there is some truth to the stereotype, and while the Chinese may have yet to develop as wide-ranging a respect for intellectual property as exists in the West, the situation is changing and Chinese courts, at least, are willing to issue judgments in favor of rights owners, Western lawyers say.

Chinese courts are making strides in part because of China’s entry into the World Trade Organization in November 2001. But perhaps more important is the fact that the Chinese are starting to see themselves as owners and creators of intellectual property, not just users.

In one striking case decided in January, the Beijing High People’s Court issued a judgment in favor of
Lego
, the privately held Danish toy giant. The case, involving sets of the famous building blocks, confirmed the company’s copyright protection for industrial design, a gray and complex area even in U.S. courts.

Because the case involved industrial design (also known as applied art), Lego called it a “landmark.” But Chinese courts have already issued many judgments in favor of Western companies in areas like copyright for written works, trademarks and design patents, says Nicholas C. Howson, a lawyer with Paul, Weiss, Rifkind, Wharton & Garrison, who divides his time between New York and Beijing. These last two areas would more routinely protect products like Lego’s.

Design patent protection for basic Lego blocks has long expired. This case involved the copying of Lego sets–groups of blocks that can be formed into something larger, like a rocket or a battleship–by a company called
Coko Toy
in China’s Tianjin province. The Chinese company was selling them in China and exporting them, even to Denmark, says Henrik Gert Jacobsen, a lawyer for Lego.

When Lego sells the sets, as opposed to the blocks, distinct intellectual property rights come into play, even if they are “industrial design” patents, which can be hard to enforce even in U.S. courts, says Steven Frank, a lawyer with Testa, Hurwitz & Thibeault in Boston. While it’s basically legal for anyone to copy a basic Lego block, so long as you don’t call it a Lego, it’s illegal for anyone to copy a Lego Harry Potter castle set, legal experts say.

In this case, Coko Toy made slight alterations in the designs of the sets, which were registered in China and elsewhere. “They were very clever,” Jacobsen says.

That a Chinese court was willing to enforce an industrial design (or applied art) copyright is significant, say lawyers with experience in Chinese intellectual property matters. “It shows a willingness and an openness on the part of the Chinese legal system to find a way to protect intellectual property,” says Michael Schumann, a lawyer with Merchant & Gould in Minneapolis.

Chinese courts have issued many such judgments in related areas, though lawyers say they are sometimes hard to find because the Chinese system for indexing legal cases is not up to Western standards. Just last month,
Sony’s
Sony Music unit won a judgment in a case involving the copying and issuing of MP3 discs, notes Rupert Ross-Macdonald, a lawyer and consultant with Rouse and Co. in London. While damages awards are often small, partly because the Chinese courts insist on a high burden of proof, there have been some large awards, he says.

Regional courts like the Beijing High People’s Court, which is roughly equivalent to a federal appeals court in the U.S., are especially willing to enforce patents and other intellectual property rights, Frank says. Lawyers familiar with the matter also speculate that the worldwide fame of the Lego brand was not lost on the Beijing judges, who were likely aware that the case would make news wherever Legos are sold.

The problem comes in getting that judgment enforced at the local level. China, like every country, tends to favor its own.

Local courts and sheriffs are often more beholden to local interests like factory owners. At times, the local government might own the factory that’s producing pirated products– and paying the local officials that might be enforcing (or not) judgments issued by a distant court, Howson says, though that type of scenario is fading from the scene as China modernizes.

The Lego case is also significant because the court ordered Coko Toy to turn over the molds it used to produce the ersatz Legos. That’s a strong message in a country where pirates can be sued one day, only to open up shop three blocks away a day later. Of course, for products that are physically easy to produce, like T-shirts or DVDs, enforcement is always more difficult, in China and everywhere else.

While there is still piracy in China, progress will come as the Chinese begin to see themselves as creators of intellectual property. China didn’t even have a patent system until 1985. Enforcement has improved over the years, Howson says. “The reason is because [intellectual] property has come into the hands of the Chinese people, and they are very, very anxious to have those rights recognized.”

“To many Chinese, [intellectual property] rights are no longer alien, abstract and incomprehensible. Rather, they are closely related to one’s daily life and the country’s domestic growth and international reputation,” says Peter Yu, who was born in Hong Kong and now teaches intellectual property law at Cardozo Law School.

The Chinese are not so excited about protecting the rights of a
Microsoft
, an
IBM
or a
Merck
. But they will likely be more keen on protecting the inventions of their own companies and universities. Schumann notes that Taiwan has become the third-ranked country–after Japan and Germany–in receiving U.S. patents. China is looking to get there, and few doubt it will. Recognition of intellectual property rights will soon follow.